Tuesday, November 22, 2016

Hold Up to Air Alliance Will Materially Affect Air Freight Customers

US Transport Department Blocks Airline Cooperation Agreement
Shipping News Feature
US – AUSTRALIA – In a decision which directly affects air freight customers the US Department of Transportation (DOT) has issued a ‘Show Cause Order’ tentatively denying the application of American Airlines (AA) and Qantas Airways to expand their existing alliance for services between the United States and Australia/New Zealand. The Australian Competition and Consumer Commission (ACCC) granted antitrust immunity for a period of five years to the alliance back in February, stating that the collaboration will promote competition between other airlines that provide service on the route, but, in the diametrically opposed view the DOT states that the proposed alliance would ‘substantially reduce or eliminate competition’.

Under the alliance, the airlines planned to continue collaborating in respect of marketing and sales, freight, pricing, scheduling, distribution strategies including agency arrangements, yield and inventory management, frequent flyer programmes, lounges, joint procurement, and product and service standards. The two members of the Oneworld Alliance had previously been granted antitrust immunity to operate a joint business agreement in 2011. AA and Qantas sought reauthorisation for an expanded agreement for a period of 10 years after AA’s reorganisation and merger with US Airways in 2013 which led to the new entity's capability to add services between US and Australia and New Zealand for the first time in over 20 years.

In reaching its tentative decision, the DOT analysed traffic data, passenger bookings, and other evidence submitted in the record of the case. Based on its analysis, the DOT found that the expanded alliance could create a potentially anticompetitive environment given the scale of the resulting joint business, which would account for approximately 60% of seats between the US and Australia. The DOT also noted that consumers would have few remaining competitive options because the US-Australia/New Zealand markets are not well served by alternative routings over third countries. In its conclusion, the Department said:

“The proposed alliance expansion would harm competition in the US-Australasia market, in particular in the large US-Australia market. By combining the airline with the largest share of traffic in the US-Australasia market with the largest airline in the United States, the proposed alliance would reduce competition and consumer choice. Qantas is by far the largest competitor operating between the United States and Australia, and American is likely the only remaining US airline positioned to enter and expand services in a competitively significant and timely manner, given its resources and network size.

“American and Qantas are long-standing commercial partners that have engaged in codesharing and other forms of cooperation for many years. In 2011, the Department the Joint Applicants’ plans to form an un-immunised joint business. We concluded then that the arrangement was pro-competitive and would likely enhance consumer benefits.

“If we finalise our tentative decision, the Joint Applicants will have to decide whether to engage in traditional arms-length forms of cooperation, such as codesharing. We tentatively find that the public benefits obtainable from such traditional cooperation would be reasonably available and materially less anti-competitive alternatives. The existing marketing partnership between the Joint Applicants is providing American with feed and support for US-Australasian service today and could potentially continue to do so in the future without approval and a grant of Antitrust immunity.”